Nothing demonstrates the failure of Indian banks to seek out profitable customers as much as the dismal statistics relating to credit card penetration in India (see table).
Seven years ago, just before the global financial crisis unravelled, the number of credit cards in India had touched a peak of 27.5 million. Following the freeze on liquidity in the aftermath of the crisis as well as tightening credit and capital standards, banks and credit card companies in India turned overcautious.
The excesses of the previous few years were controlled and they squeezed millions of credit cards out of the system. Ambush marketing of credit cards that was rampant till then was stopped so that by 2010, the number of cards had dropped drastically to about 18 million cards. It remained at that level for the next three years. Since then card growth has inched up, but the number had risen to just over 21 million by the end of 2014-15.
Why credit card growth has not been more robust these past few years is a mystery that card issuers are hard-pressed to explain. Of course, everyone talks about tougher standards and filters to ensure cards are issued only to the ‘right’ and safe customers. But it is hard to believe that more than a dozen card issuers could find a mere three million customers worthy of issuing cards in four years.
It is not as though the economy was in recession during this period for card issuers to look for excuses.Economy growing
If anything, the economy has grown — whether gauged by the old method or the new — by at least 6-7 per cent annually. Besides, both volumes and value of transactions on the existing cards has grown three-fold during this period, reflecting both improved consumer sentiment and better quality.
Also, card issuers today have access to better data about the credit history of individual applicants through a number of credit information companies which were not operational a decade ago. Back then, they issued cards based on blind faith or on the enthusiastic marketing by their phone bankers or direct sales agents, without giving due regard to credit worthiness and over-leverage.
Today, that is not the case. Banks, therefore, should not be so hyper-cautious that they cease to take any risk at all. If it is indeed true that the Indian middle class is 400 million strong and there are about a million new job entrants every month, banks are clearly missing some opportunities.
Just 21 million credit cards in a country with 1,300 million people and 900 million mobile phones and nearly 700 million bank accounts, is appalling. Doesn’t do much for the image of India recovering or India shining, does it?